INSUBCONTINENT EXCLUSIVE:
NEW YORK/SHANGHAI: Global index provider MSCI is quadrupling the weighting of Chinese mainland shares in its global benchmarks later this
year, a move it said might draw more than $80 billion of fresh foreign inflows to the world's second-biggest economy.
The weighting
increase, announced on Thursday, may be a milestone in Beijing's efforts to internationalise the yuan.
MSCI also said it will add Chinese
mid-cap stocks to its emerging market benchmark in November, boosting the number of Chinese constituents.
MSCI's milestone China inclusion
in 2018 was a positive experience for global investors, and "has fostered their appetite to increase further their exposure to the mainland
China equity market", MSCI Managing Director Remy Briand said.
The decision, largely within expectations, marks a win for Beijing, which has
stepped up efforts to woo foreign investment in the face of a slowing economy and prolonged trade friction with the United
States.
"Inclusion should boost investor sentiment and, over the long term, flows into China," Caroline Yu Maurer, head of Greater China
equities at BNP Paribas Asset Management, said in a note.
"It also helps advance President Xi Jinping's ambitions to make the renminbi a
global currency," she said.
Shanghai stocks rose more 1 per cent early Friday, helped by the MSCI announcement before market opening, then
shed some of the gain.
The index provider will increase the inclusion factor of Chinese large-cap stocks to 20 per cent from the current 5
per cent in three steps, with increments of 5 per cent in May, August and November.
On completion of the three-step implementation, the
weighting of Chinese stocks in the MSCI Emerging Market Index will jump to 3.3 per cent, from roughly 0.7 per cent currently.
Future weight
increases for Chinese shares will depend on China further improving market accessibility for overseas investors, who are concerned over
limited hedging tools and a few operational issues, said MSCI.
The MSCI announcement could give a lift to a stock market that has jumped
about 20 per cent so far this year, partly on hopes that Beijing and Washington will soon reach a deal resolving their trade dispute.
Rival
index publishers FTSE Russell and SP Dow Jones Indices will both start adding yuan-denominated Chinese shares to their global benchmarks
this year as Beijing steps up efforts to integrate China's capital markets into the global financial system.
Fang Xinghai, deputy head of
China's securities regulator, predicted foreign capital inflows into Chinese stocks this year will double to about 600 billion yuan
($89.76 billion).
MSCI said it will add Chinese A Mid-Cap shares, including eligible ChiNext shares, with a 20 per cent inclusion factor, to
the MSCI indexes in November.
After implementation, the MSCI Emerging Markets Index will include 253 large-cap and 168 mid-cap China
A-shares, representing a weight of 3.3 per cent in the pro-forma index.
Brendan Ahern, chief investment officer at Krane Funds Advisors in
New York, which manages the KraneShares Bosera MSCI China A ETF, said: "I am almost crying
We have built the (ETF) in anticipation of this event
We anticipated that this inclusion would take place and built an ETF vehicle that investors could proactively take advantage of."
KBA is up
